Foreign investments get composite caps; retailers to benefit

New Delhi: Promising a simpler foreign investment regime, the government introduced a concept of composite cap for all kinds of overseas inflows including through FDI, FII and NRI routes a move that may benefit retail companies and stock exchanges among others. However, individual FDI and FII limits would continue in two key sectors, banking and defence, a government official said, even as some bankers claimed they might also benefit. Among others, the decision, approved by the Union Cabinet here today, will benefit credit information firms and other market infrastructure institutions such as commodity and power exchanges, as they can bring in foreign investments either as FDI or FII up to the composite cap.

Stating that the concept of composite caps has been introduced for simplification of foreign investment norms, Finance Minister Arun Jaitley said, "From now onwards, all FIIs, NRIs and other foreign investments will be clubbed. "It will be constituted as a composite cap," Jaitley told reporters after the Cabinet meeting chaired by Prime Minister Narendra Modi. A government official said the move will provide options to both foreign and domestic investors, but added that no changes have been made with regard to specific foreign investment norms for the banking and defence sectors. Foreign investment in banking and defence sectors will continue to have separate caps for FII and FDI, the official added.

The limit of portfolio investment in banking is capped at 49 per cent while in defence it is 24 per cent. Some bankers, including Yes Bank chief Rana Kapoor said the move would help attract more capital flowing into the system and significantly ease the procedural investment decisions by foreign investors. The official said all existing investments will hold good even if they are not exactly in compliance with the new norms. In a post-Cabinet statement, the government also said investments made through Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs) would not be treated as foreign investment unless the debt is converted into equity.

The proposal is aimed at simplification of FDI policy with a view to attracting foreign investments and also improving ease of doing business in India. Under the existing policy, there are different caps for separate investment categories like FDI, FII and NRIs. The proposal, mooted by the Commerce and Industry Ministry, would help remove ambiguity on application of sectoral caps, conditions and approval requirements in different sectors and simplify the foreign investment policy. In 2014-15, investment by foreign institutional investors (FIIs) grew over seven times to USD 40.92 billion. FDI grew 27 per cent to USD 30.93 billion in the previous fiscal.